World brands are leaving Russia: will fashion stay?

Irina Mishina

Sales in Russia have already been suspended by Swedish Hennes & Mauritz (brands H&M, COS, Arket, & Other Stories, Monki and Weekday), American Nike and about a dozen brands and marketplaces. As experts suggest, the suspension of sales in Russia of other foreign companies is a matter of time.

The Swedish company Hennes & Mauritz, best known for its H&M brand, was the first to announce its exit from the Russian market. This decision, according to representatives of H&M, is connected with Russia's "military special operation" in Ukraine. The stores of this brand in Ukraine, by the way, have already been temporarily closed for security reasons.

H&M is a significant loss for the Russian "fashion" market. This is one of the largest chains of clothing stores in Europe. At the beginning of 2021, 155 stores of the company were opened in Russia, the annual revenue in Russia at the end of 2020 amounted to $745 million.

Following Hennes & Mauritz on March 3, the Spanish brand Mango announced a temporary cessation of work in Russia. "Due to the current difficulties associated with transportation and supply, Mango cannot guarantee the support of its activities in Russia," the company's website says.

The British fashion retailer Marks & Spencer (M&S) also stopped deliveries to Russian stores. “Given the unfolding humanitarian crisis following the invasion of Ukraine, M&S is suspending supplies to the Russian business of the Turkish franchisee,” the company said.

In addition, Boohoo, Nike, Ganni brands, ASOS, Farfetch, Yoox, Net-a-porter, Mr Porter, Matchesfashion and Mytheresa marketplaces have been suspended in Russia.

So far, the stores of another fashion market leader, the Spanish holding Inditex, which owns the brands Massimo Dutti, Pull and Bear, Zara, Stradivarius, Bershka, and others, continue to work. Employees of the stores of this chain report that work is going on as usual, no warnings from management about no upcoming closures have been reported. How long this brand will last in Russia is difficult to judge. Forbes quotes Svetlana Kuzmina, director of the retail real estate department at Accent Capital:

“I still don’t really believe in the total exodus of brands from the Russian market, a lot of effort and money was spent to come to us”.

Leaving the Russian market, foreign retailers really lose a lot. According to Forbes, in 2021 the turnover of the Russian fashion market has grown to 2.69 trillion rubles. 67% of this turnover came from clothing sales. Experts could not even calculate the exact number of international brands in Russia. The fact is that many companies operate in Russia under a franchise, some as joint ventures with Russian capital. “Many brands are still considering a strategy, but the headquarters of all international companies are obliged to respond to geopolitical processes in the world”, - the expert explains.

In general, the clothing segment does not belong to the sanctions industries. It is unlikely that there will be targeted restrictions on clothing imports. Decisions to leave the market are independent decisions of the brands themselves. But from a business point of view, these brands are not at all interested in losing the Russian sales market. After all, the suspension of business means the actual closure of stores and the registration of employees on forced leave. Retailers rent premises for shops, and tenants will have to pay the agreed amounts until the end of the contract.

But we, apparently, will have to come to terms with the fact that Russian shopping centers may be half empty. After all, the average shopping center such as "Atrium", "Oceania" or "European" in Moscow is today about 200 stores. International brands account for up to 40%, or about half of the area.

How to replace the outgoing foreign brands?

“There is no clothing production in Russia, with the exception of knitted and knitted products,” Forbes quotes. on condition of anonymity, the words of the owner of the Russian fashion company. “The purchase of fabrics and sewing products from Russian brands takes place mainly in the Asian region - in China, Vietnam, and India.” According to experts, the problem may be aggravated by a number of factors: further sanctions, the closure of air traffic. In addition, the largest logistics companies - Maersk, Mediterranean Shipping Company and CMA CGM - announced the termination of work with Russia.

The departure of foreign brands is a sad fact, but do not forget that Russia has its own brands: Bellucci is a Russian brand, a manufacturer of fashionable women's clothing. This brand belongs to the Finnish company Stockmann. Oodji is a Russian brand, a network of women's and men's clothing, shoes and accessories. Sela is a Russian brand, a manufacturer of stylish women's and children's clothing, is part of the Melon Fashion Group, which also owns the Befree, Zarina and Love Republic brands. It is also worth mentioning Mossmore - a manufacturer of jeanswear made from natural materials for men and women. Also known to customers is the manufacturer of men's and women's clothing and accessories Savage, which has more than 200 stores in Russia, Ukraine, Kazakhstan and Belarus. Russian fashionistas probably know Incity, a manufacturer of fashionable women's clothing and accessories, and Termit, a brand that produces youth sportswear. The Termit brand belongs to the Sportmaster chain of stores.

Perhaps these brands will be able to satisfy the demand to some extent, but experts agree that without the participation of foreign partners, Russian companies will not be able to provide the market with local products, since at the moment the main types of raw materials, accessories for the production of clothing and footwear are imported.

True, this import can be replaced by supplies from China, Turkey, India, Vietnam or South Korea, and the vacant market sectors can be given to Russian clothing and footwear companies. In a market economy and unsatisfied demand, clothing production can be established in a matter of months, experts say, recalling the experience of cooperatives in the late 80s of the last century.